What has gone wrong with Provident Financial?

It all started so innocuously. In February, Provident hailed “a strong set of results” in February, as it announced its pre-tax profits had risen 26% in 2016 to £343.9m.

At the same time, chief executive Peter Crook outlined the ambition to transform the operating model of its doorstep lending operations.

Fast forward six months to today and Crook is gone, following the managing director of the consumer credit division, Mark Stevens, out of the door. He leaves behind a company in turmoil facing a very uncertain future.

Provident’s consumer credit division has two parts – its small-sum, short-term credit provider Satsuma and its home credit division.

Its home credit operations had undergone significant change since 2013, when Stevens was moved internally to head up a new management team with a turnaround strategy.

Investment in people and technology was designed to create a “leaner, better-quality, modern, more profitable home credit business”. And it did.

Mark Stevens, former managing director of Provident Financial's home credit division

Mark Stevens, former managing director of Provident Financial’s home credit division

 

Provident focused on a more credit worthy customer base, reducing its number of customers from around 1.5m at the end of 2013 to stabilise below 900,000 in the second half of 2016.

While it expected numbers to increase again over the medium term, it had already achieved started to reverse falling sales, recording a year-on-year increase in 2016.

The foundations were now in place to launch the next phase of the transformation, which Stevens described as “a logical extension of the excellent progress made”.

Provident decided to shift from its model of using 4,500 self-employed, part-time agents – an approach it described as “no longer optimal” – and replace them with 2,500 full-time employed customer experience managers.

Technology investments, to include route planning and voice recording, and a streamlined field management structure were part of the efficiency measures being brought in at the same time.

Once fully implemented, these changes were expected to boost the division’s annual profits by “at least £30m to over £150m”.

Provident did anticipate some problems – an exceptional payment of up to £20m to cover redundancy, retention and training costs, plus a short-term trading impact of up to £15m.

In May, Provident told the stock market that the transition to the new model was “progressing broadly in line” with the timetable, although it noted that “collections performance since February has been impacted by uncertainty within the field organisation”.

But six weeks later, on June 20, it warned that operational disruption had hit collections and sales. It more than doubled the hit it expected from the impact on trading, to £40m, and reduced its forecast for the division’s pre-exceptional profits to £60m.

Provident Financial’s former chief executive Peter Crook

Its share price dropped 18% in a day but Crook, who said he was “disappointed” with the problems, continued to back the plan.

“The strategic rationale for the change remains strong and I am confident that it will deliver the substantial benefits previously communicated,” he added.

Stevens was gone by July 25, when Provident revealed a 46% fall in first-half profits that was blamed on the problems in the home credit division.

“The issues are very much of our own making,” said Crook, speaking last month.

Provident’s board agreed, and today announced he had “decided to step down” with chairman Manjit Wolstenholme taking an executive role.

Sales have been up to £9m a week lower than last year and this “substantial deterioration” has resulted in the group now forecasting a pre-exceptional loss of between £80m and £120m for its home credit division.

Wolstenholme is now seeking “to secure the turnaround of the business”.

It has been quite a transformational six months.

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